Market Review: UNITED STATES JULY 2018 CORE RETAIL SALES
Economic calendar (highest volatility): 13th August – 18th August 2018:
This month, the United States (U.S) Federal Open Market Committee (FOMC) raised Interest Rates largely as anticipated, bringing up the benchmark rate to 2% from the former 1.75% level. Interestingly while this decision largely met forecast, the tone of the regulators suggest that two more U.S Interest Rate hikes are likely to take place this year. This brought about sustenance in the U.S Dollar's (USD) value and avoidance of a 'sell on fact' currency play, as the formerly vague expectations for four Interest Rate hikes to take place this year has now been largely reaffirmed. The USD strengthened on Friday to 96.27 as risk aversion towards the economic crisis in Turkey and market volatility kicking up in Russia continue to boost demand for the US currency. The USD uptrend was also supported by the U.S. Consumer Price Index data coming in line with expectations and showing a gain of 0.2% in July, hence pointing to a steady increase in inflation pressures that keeps the Federal Reserve on track to gradually raise interest rates. Despite the continuing strength witnessed in the U.S Dollar and the progress made on the trade agreements between the U.S. and European Union in July where the U.S. and EU agreed to a zero tariff deal and ironed out issues related to trade barriers and subsidies, the trade war between the U.S. and China is continuing to intensify, following the U.S. decision to levy 25% tariffs on US$16 billion of Chinese goods on August 23 In response, China confirmed that it will impose 25% tariffs on an additional US$16 billion worth of imports from the U.S. from August 23, marching the earlier move from Washington. The team here at FintechFX view that the trade wars could be a hindrance to the USD's strength moving forward.
Furthermore, the team here at FintechFX view that political risk related issues might deter the rise of the USD as concerns for more aggressive retaliations out of China built in to the currency market, even though the USD was higher than most major pairs this week as the market saw that the U.S. would be better equipped to weather a slowdown in trade than other major economies. Worries of escalating trade wars with neighboring countries like Canada could be a longer-term negative for the USD as currency markets in general, do not favor any forms of trade intervention. In addition to this, the trade dispute between the U.S. and Canada continues to mount with Canada hitting back against the U.S. with its list of retaliatory tariffs after the Trump administration went ahead with threatened tariffs on steel and aluminum. Trade wars carry a major risk of escalation that could weaken investment, unsettle financial market and slow global economy.
In regards to this week, the Australian Dollar (AUD) and Great Britain Pound (GBP) will probably be one of the most-watched currencies, ahead of the released of Australia’s employment rate and on worries over the possibility of the U.K. having to leave EU without securing a trade agreement. Recent comments from Bank of Englad Governor Mark Carney suggests an unfavorable outcome may derail the central bank from its hiking-cycle as it would have a negative impact on the U.K. economy. The team here at Fintechfx\ also view the Canadian Consumer Price Index (CPI) and retail sales figures on Friday to bring about substantial market volatility to the Canadian Dollar (CAD) during the week as any spike in inflation that would trigger an acceleration of the pace of interest rate hikes by the Bank of Canada.
Taking a slight recap on the USD/CAD, the team here at Fintechfx would like to highlight that the Bank of Canada (BoC) has raised its benchmark interest rates from 1.25% to 1.50% in July, bringing them closer to the benchmark rate of their neighbour, the U.S. Nonetheless, the team notes that a 'sell on fact' play was witnessed straight after reinforcing our views that the USD strength largely outweighs. In addition as of late, the Canadian Dollar (CAD) has largely been affected by two catalyst, notably the actions taken by the U.S on wanting to impose tariffs on Canadian steel and aluminium as well as the fall in global oil prices. Therefore for the week, the team here at FintechFX view the USD/CAD to rise further.
The GBP/USD has recouped much of its post-Brexit losses however, has weakened broadly last week on fears of a no-deal Brexit that the increase in interest rates from 0.5 to 0.75% by the Bank of England was not enough to boost the currency. However, the team here at FintechFX views for a "buy on rumour" move to potentially develop pending the release of the U.K. wages and inflation data provided that U.S Dollar optimism or the Brexit negotiations led by Theresa May does not outweigh this sentiment. The U.K. employment and wages data release on Tuesday and the U.K. CPI release on Wednesday, which is forecasted to nudge a fraction higher, is expected to give the GBP a boost. The CPI is expected to rise to 2.5% in July, from 2.4% in June. If this target is hit, the GBP may receive a small boost, but any misses would push GBP further lower. Hence if a positive GDP outcome is not seen, the team here at FintechFX view the ongoing positive sentiment of the U.S Dollar to sustain.
Source (Charts): https://www.investing.com
Source (Economic Calendar): https://www.forexfactory.com/calendar.php
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